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  #51  
Old 02-06-2019, 03:26 PM
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Renting the house out is another viable option, diggerwam, but realize that you are going to have to put some money into the house to make it rentable, and have money set aside (or available credit) for any repairs/maintenance that may be required. You also have to be prepared to pay for the mortgage between renters.

Note that if you live in the house, you can choose to delay or forgo non-critical repairs -- but with renters, you don't have that option. (For example, our furnace died last November, and we went without heat for 3 weeks while arranging for it to be repaired under the extended manufacturer's warranty. A renter would not be as patient.)

IMHO, this would still be a preferable option to walking away from the mortgage, and may be an alternative to consider if you really want out of the house, but don't want to wait until the value of the house is no longer underwater.
  #52  
Old 02-06-2019, 05:08 PM
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Originally Posted by kanicbird View Post
The OP is asking about playing by the rules of the game. There is no personal honor at stake, that was replaced by a contract which already accounts for such contingency, risk assumed by the lender. If it was a gentleman's agreement then there would be such concerns. So 'not living up to the contract' is allowed in the contract, thus they are living up to the contract. All and all fair dinkum.
The rules of the game are represented by the contract that the OP and the lender both agreed to. The lender lived up to his side of the bargain: loaned the money for the purchase of the house to be repaid over 30 years at an agreed interest rate. The OP hasn't described a situation where he was coerced into entering into this mortgage agreement. He is just unhappy with where he is today. If the OP walks away and hands the keys to the lender, that's not really living up to the agreement, especially given the circumstances that the OP is financially in the position to continue servicing the debt. The OP is not planning on filing for bankruptcy, because he isn't bankrupt. And according to Illinois law, as referred to above, the OP is going to be liable for the shortfall of $20k plus the 2nd mortgage of $13k, assuming that the home is valued at $80k and can be sold for that amount.

So I'm unsure what the OP thinks he's walking away from. He still has to find another place to live, which he says is going to cost him $950-$1000 per month, in addition to paying of the remaining $33k he still owes on the house.

I also find it very interesting that many posters act like that the bank has made a killing off the OP collecting a market rate of interest over the life of the loan. That's not making a killing, that's just getting paid what the market says is a fair cost of capital. If the bank hadn't loaned him the money years ago to buy the house that he wanted to, he'd been paying a landlord similar amounts of money as well.
  #53  
Old 02-06-2019, 05:25 PM
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Also consider that if the apartment doesn't work out, you'll have to go through a credit check with a new place in a year.

I really don't understand what problem is so bad that you want to ditch your house and really screw up your credit rating. I figured you would be saving quite a bit every month, but it's only about a hundred dollars. ?? It's really not worth it.
  #54  
Old 02-06-2019, 09:27 PM
betterlifethroughchemistry betterlifethroughchemistry is offline
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Was he already in arrears on mortgage payments by the time he sorted out the short sale? If not, it seems a bit rough that they would trash his credit if he went through the process of dealing with the problem as appropriately and honestly as he could via a short sale and a payment plan to make good on the shortfall.
I believe he was, but not to the point of being in foreclosure...long story short, his ex was having an affair, bolted for the BF, they needed both incomes to pay the mortgage, she refused after she left...it took about eight or nine months before he was able to negotiate everything...they might have been in arrears, but I know from subsequent conversations he has said specifically the short sale messed his credit big time...my impression is that, even if you go to the bank with hat in hand, it's not viewed as being a positive credit event...
  #55  
Old 02-06-2019, 09:43 PM
betterlifethroughchemistry betterlifethroughchemistry is offline
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It's sad, but probably telling, that so many people here are approving of the OP just walking away from a contract, and from the house, basically because he just doesn't feel like living up to the responsibility he agreed to. If the bank had a similar provision to screw the guy, we'd be on the proverbial streets with pitchforks looking for the bank.
You might want to revisit the thread and reread the posts, there are very few people here that are "approving of the OP just walking away", the vast majority are saying either NOT TO or consult a lawyer, and some are saying both...and there are a good percentage advising to "think about it before you act..."
  #56  
Old 02-07-2019, 08:25 AM
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The issue is not that the mortgage payment is too high, it's just that it's absolutely banging my head against the wall. I'd like to stop this damn treadmill
As others have said, I don't get this part. Renting is even more of a treadmill, with no endpoint. What will you do when you want to retire if you decide to trash your credit and start renting now?
  #57  
Old 02-07-2019, 12:07 PM
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OP, please take a look at what aspects of being in the house are causing you the most grief. If it's just the financial burden then you have been given good advise and a good financial planner is in order.

I would guess that most home owners find the situation tolerable unless there are other factors. Perhaps looking for other ways address your issues may be fruitful. I've been terribly upside down in a mortgage and, although not a pleasant situation, give me the level of stress you have.
  #58  
Old 02-07-2019, 02:29 PM
Really Not All That Bright Really Not All That Bright is offline
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The rules of the game are represented by the contract that the OP and the lender both agreed to. The lender lived up to his side of the bargain: loaned the money for the purchase of the house to be repaid over 30 years at an agreed interest rate. The OP hasn't described a situation where he was coerced into entering into this mortgage agreement. He is just unhappy with where he is today.
It's a secured loan. The OP's obligation is to pay the mortgage or turn over the underlying collateral. He is living up to his side of the bargain. Banks and other commercial enterprises do the same thing all the time; look up efficient breach.

Now, if the OP's plan was to stop paying the mortgage and stay in the house through years of foreclosure litigation, I would agree with you.
  #59  
Old 02-07-2019, 02:48 PM
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This is based on a friend I know, so it might not apply to the OP. Is the house really the problem, or is it something else? My friend is one of those people who is often unhappy, and one of the things he blames is where he lives, so it seems like he always wants to move. Fortunately he earns enough to do this, but he would be in far better financial shape if he wasn't buying and selling his house every 3-5 years. For my friend, it's not so much the house that is the problem, as much as untreated anxiety and depression, so the neighbor with a loud car irritates him, and he thinks moving will solve all his problems. Wash rinse and repeat.

Another option for the OP, is outsource the upkeep and other issues that are bothersome. Sure, it will cost some money, but probably less in the long run than a foreclosure. Hire a yard service, find a handyman to take care of the small problems, and a contractor to take care of big ones. Finding the right people is hard, but there are even services to help with that. My dad is so much happier now that he made the mental adjustment that he is going to hire somebody to do the things around the house he used to do himself, but are now a physical burden.
  #60  
Old 02-07-2019, 03:05 PM
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Doctor Jackson Doctor Jackson is offline
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Folks, read the OP. The issues are clearly stated there:
Quote:
Originally Posted by diggerwam View Post
We are simply tired of the house, we want simpler lives, less upkeep on the house, tired of 4k plus in taxes and other yard upkeep.
The bottom line is that the OP is no longer wants to be responsible for maintenance on a house and yard. The desire is probably exacerbated by the fact that he is upside down in the house, value-wise. He has repeatedly said, however, that the issue is not his ability to make the monthly payment.

The expenses, including property taxes, the OP will still be paying in an apartment. The landlord will have set rent at an amount that will enable him to recoup monies spent on taxes and upkeep AND turn a profit. The difference is that, when one is a homeowner those expenses are paid when incurred while as a renter a bit of each monthly payment goes toward maintenance and taxes. The only thing that will work to the OP's benefit is the fact that he and his wife won't physically have to do the yard and home maintenance work.

Given that, why don't you just hire a lawn company to keep the yard minimally decent and pay a professional to do household maintenance when required? The only possible way to financially "win" in this situation is to stay in the house until either the mortgage is paid down or the market swings back up.

Last edited by Doctor Jackson; 02-07-2019 at 03:07 PM.
  #61  
Old 02-07-2019, 04:05 PM
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Agree with Doctor Jackson. There are also tax benefits of owning vs renting that have to be figured in.
  #62  
Old 02-07-2019, 04:47 PM
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Originally Posted by Omar Little View Post
If the OP walks away and hands the keys to the lender, that's not really living up to the agreement...
The mortgage specifically says exactly what happens if the homeowner stops paying the mortgage. How is he not living up to the agreement?
  #63  
Old 02-07-2019, 05:22 PM
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Well technically he's defaulting on the loan/breaching the contract, even if said contracts delineates what happens under those circumstances.
  #64  
Old 02-07-2019, 05:34 PM
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The mortgage specifically says exactly what happens if the homeowner stops paying the mortgage. How is he not living up to the agreement?
Read your own mortgage, and quote the portion that says you are permitted to just walk away and turn over the collateral. You won't find such terms. If you walk away, you are in breach of the contract. The collateral is the remedy to the lender int he event of a breach of contract. In certain states, like the OP's, you are still liable for the shortfall on the loan, if the collateral value is insufficient to cover the outstanding amounts under the loan, then the borrower can still be held liable.
  #65  
Old 02-07-2019, 05:36 PM
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Agree with Doctor Jackson. There are also tax benefits of owning vs renting that have to be figured in.
Well, there are tax benefits to paying a large amount of mortgage interest. I am not familiar with any that are directly tied to owning.
  #66  
Old 02-07-2019, 05:42 PM
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Well, there are tax benefits to paying a large amount of mortgage interest. I am not familiar with any that are directly tied to owning.
I can't imagine the interest on a 100K loan, 12 year in, is enough to make itemizing worth it. Assuming they don't have a ton of other deductions, they probably don't bother.
  #67  
Old 02-07-2019, 05:44 PM
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If you walk away, you are in breach of the contract.
So?

This is capitalism, the expectation is that people act in their own best interest. If breaching the contract is in someone's best interest, then that's what they should do. The bank would breach a contract with you in a hot minute if they thought they could net $1000 for doing so, even if the breach would leave you homeless looking for dinner out of a garbage can.

Note, this best interest includes the totality of the effect, including fees, penalties, credit rating, etc. In this case, it's probably not worth it, but if it was, I'd tell the OP to do it and not feel the slightest pang of guilt for doing so.
  #68  
Old 02-07-2019, 06:18 PM
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Originally Posted by Omar Little View Post
Read your own mortgage, and quote the portion that says you are permitted to just walk away and turn over the collateral. You won't find such terms. If you walk away, you are in breach of the contract. The collateral is the remedy to the lender int he event of a breach of contract. In certain states, like the OP's, you are still liable for the shortfall on the loan, if the collateral value is insufficient to cover the outstanding amounts under the loan, then the borrower can still be held liable.
Breach of contract is part of the contract, so again playing by the rules. If the breach of contract section is valid under the conditions of the breach it is fair game as that is also under the contract.

Last edited by kanicbird; 02-07-2019 at 06:18 PM.
  #69  
Old 02-07-2019, 06:27 PM
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Anyway it's fun and all talking about the moral aspects, but since they can come after you for the balance, the point is moot, your best strategy would be talk to them and try to arrange a short sale.
  #70  
Old 02-07-2019, 06:39 PM
betterlifethroughchemistry betterlifethroughchemistry is offline
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I can't imagine the interest on a 100K loan, 12 year in, is enough to make itemizing worth it. Assuming they don't have a ton of other deductions, they probably don't bother.
The OP said they still owed $100K, not that the original loan was $100K...12 years in on a 30 year mortgage, my WAG is they paid about $135 - 140K, so they are still paying more interest than principle...
  #71  
Old 02-07-2019, 06:55 PM
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Anyway it's fun and all talking about the moral aspects, but since they can come after you for the balance, the point is moot, your best strategy would be talk to them and try to arrange a short sale.
I'd first find out how the lender intends to report the short sale to the credit bureaus. Depending on how they report, that can also devastate your credit- and will stay on your reports for 7 years.

I still think the OPs best bet, given the cost of rent he reports is to suck it up and stay for a few more years. I'm not sure what market trends are in his area, but it seems to me that the market value of his home was once much higher than it is now. If the real estate market on the rise in his area, he could break even & walk away without any damage to his credit....so long as he can stick it out.
  #72  
Old 02-08-2019, 12:41 PM
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That's why banks make money, investment is a risk, a calculated risk,

If he's paid for 12 years and we're looking at a 100k to 80k difference..... The bank didn't lose squat, and probably still made money , probably quite a bit actually.


In any case with these numbers, I'd imagine the loan holders would be willing to negotiate it for maybe no more than you can sell it for.
So it's OK to break the contract that you signed and walk away from the debt that you owe, as long as the other party has more money than you?
  #73  
Old 02-08-2019, 01:28 PM
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So it's OK to break the contract that you signed and walk away from the debt that you owe, as long as the other party has more money than you?
It's OK to break the contract that you signed and walk away from the debt that you owe, as long as the other party:
- spent decades sitting next to lawmakers crafting the laws that govern mortgages
- wrote the contract upon which the mortgage was secured
- has rooms full of actuaries and statisticians to ensure that their portfolio of mortgages remains profitable and that future approved mortgages are forecasted to remain so
- has a building full of lawyers on call to help them recover every blessed penny they are legally owed
  #74  
Old 02-08-2019, 01:54 PM
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You do understand the connection between having funds available to lend to YOU, and getting repaid the monies they lend out, right?
  #75  
Old 02-08-2019, 02:23 PM
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Originally Posted by Cheesesteak View Post
It's OK to break the contract that you signed and walk away from the debt that you owe, as long as the other party:
- spent decades sitting next to lawmakers crafting the laws that govern mortgages
- wrote the contract upon which the mortgage was secured
- has rooms full of actuaries and statisticians to ensure that their portfolio of mortgages remains profitable and that future approved mortgages are forecasted to remain so
- has a building full of lawyers on call to help them recover every blessed penny they are legally owed
ah, so it's a"victimless crime", is that it?
  #76  
Old 02-08-2019, 02:39 PM
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You do understand the connection between having funds available to lend to YOU, and getting repaid the monies they lend out, right?
Lending money to ME isn't a gift to me, it's a business transaction. If they can't manage their business, and previously loaned money secured by hilariously inadequate assets, that's not my problem, it's theirs.

They know the rules and how the mortgage market works better than 99% of their customers, they can manage if a few underwater borrowers default and they don't get back 100% value from their loan. It's a risk, it's a cost of doing business, a cost that their actuaries should have told them about, and they should have incorporated into their pricing model.
  #77  
Old 02-08-2019, 02:40 PM
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ah, so it's a"victimless crime", is that it?
Not even remotely correct. It's what we in business call "business".
  #78  
Old 02-08-2019, 02:55 PM
Really Not All That Bright Really Not All That Bright is offline
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ah, so it's a"victimless crime", is that it?
It's not a crime at all. Breaching a contract is deemed to be so normal that civil courts can't even award punitive damages for a breach.
  #79  
Old 02-08-2019, 10:02 PM
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Well the consequences of breaching the contract are that you are labeled as someone that breaches contracts, and your ability to enter into such contracts again is severely limited. Just as if the financial institutions regularly didn’t live up to their side of the contracts they would lose significant amounts of business as well.
  #80  
Old 02-09-2019, 01:01 AM
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The expenses, including property taxes, the OP will still be paying in an apartment. The landlord will have set rent at an amount that will enable him to recoup monies spent on taxes and upkeep AND turn a profit.
Rent is set by the market. A landlord hopes that it is enough to cover mortgage, taxes, upkeep, HOA, and still turn a profit. If it is not enough, then the rental unit is a bad investment. If the OP is in a city with very depressed real estate prices, it is possible that rent may also be low, because landlords are just hoping to make something, and a glut of empty units is keeping the price lower than what is necessary to break even, but they don't want to sell because they're upside down, too.

Even if real estate prices are depressed, there may be a low vacancy rate, so rent is actually high.
  #81  
Old 02-09-2019, 06:27 AM
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It's not a crime at all. Breaching a contract is deemed to be so normal that civil courts can't even award punitive damages for a breach.
Really? That would put a lot of lawyers out of work. Of course, it depends what was written in the contract. I have a real problem envisaging a mortgage agreement that did not make provisions for a default. I'm no expert on US property law, or any other, but businesses function in much the same way worldwide.

My take on the whole situation is this: defaulting for a trivial reason, while still being able to pay, will just cause you endless grief. If money is not the real problem, sell the house and move. Rent or buy as you wish, but frankly you would be better off buying if you are around a decade away from retirement.
  #82  
Old 02-09-2019, 09:39 AM
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Looking for advice, preferably from people w/ recent experience. Recession experience will be helpful too, but I'm sure the environment has changed in the years since.

We are both pushing 50, good jobs, my wife has rheumatoid arthritis. Still owe 100K on mortgage, may be able to sell house for very low 80's. Lived here 12 years. We are simply tired of the house, we want simpler lives, less upkeep on the house, tired of 4k plus in taxes and other yard upkeep.

I want to walk away from the house. Questions we have....should we tell the bank of our plans or just skip a couple months and hand them back the keys? Other than a significant drop in credit rating, what else will the bank do to us? Will they pursue us for any add'l funds or can I walk away clean?

We also have a 2nd mortgage with a balance of 13K. The payments are low, so I'd like to keep paying that. Will I be allowed to keep making those monthly payments even if we are out of the house?

We don't want to take on add'l debt but we do make 100K combined per year, but we really cannot add to existing debt. We can afford a decent apartment if we walk away.

I'm sick to death we are at this point, but there is zero benefit and honestly quite a bit of missed opportunity costs by keeping up this house. We made mistake buying this house 18 months before housing market collapsed.

Are there any other options that I'm unaware of? Renting out a room or moving and renting the whole house is not something we have much interest in.
So your 33K underwater, and you walk away. Here's what will happen, and no it won't matter if you just stop the payments or tell the bank to take it back. As a side note I say 33k as the second will be due once the house goes into foreclosure.

First the bank will foreclose on the house, this involves paperwork, then after that the bank will sell the house at auction, and say the bank does get 80K for the house (really they might get much less) leaving at least 33K plus all the expenses. So for easy number say it comes to 40 - 50k, which the bank will sue you for. Now then if you can't pay that, you'd file for bankruptcy, and that would be under chapter 13 not 7, in which the court would make you pay a trustee to make payments to the bank. A bankruptcy will follow you forever.

You best bet is to stick it out until the market recovers enough to cover the the first and second. It'll be cheaper in the long run.
  #83  
Old 02-10-2019, 05:19 PM
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We also have a 2nd mortgage with a balance of 13K. The payments are low, so I'd like to keep paying that. Will I be allowed to keep making those monthly payments even if we are out of the house?
This befuddles me. If you were going to walk away from the house and the first mortgage, why would you want to keep up payments on the second mortgage? In for a penny, in for a pound, you know?

To answer your question, though, I am pretty sure that if you have lost the house, the mortgage allows them to demand payment in full, and they won't just let you keep on making your normal monthly payments as if nothing had changed. (What happens if you don't then pay them off is a different question, as is the question of whether they would consider some sort of ongoing payment arrangement to satisfy your debt, which would also now include various penalties and additional fees, I would imagine.)
  #84  
Old 02-11-2019, 12:18 AM
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...I am pretty sure that if you have lost the house, the mortgage allows them to demand payment in full, and they won't just let you keep on making your normal monthly payments as if nothing had changed.
Exactly. The only reason the OP got the interest rate they got on the second mortgage is because it is secured by the house itself. If the OP defaults on the second mortgage, the bank can force a foreclosure sale on the house in order to get their money back.

If the house foreclosed on for any other reason (e.g. failure to pay the primary mortgage, failure to pay city taxes, etc.), they have lost their security. One might think that the holder of the second mortgage might be willing to simply increase the rate to that of an unsecured loan, but it is far more likely that the loan terms only give them the remedy of demanding full payment of the outstanding loan balance immediately -- which they will surely do.
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Old 02-11-2019, 07:09 AM
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Exactly. The only reason the OP got the interest rate they got on the second mortgage is because it is secured by the house itself. If the OP defaults on the second mortgage, the bank can force a foreclosure sale on the house in order to get their money back.

If the house foreclosed on for any other reason (e.g. failure to pay the primary mortgage, failure to pay city taxes, etc.), they have lost their security. One might think that the holder of the second mortgage might be willing to simply increase the rate to that of an unsecured loan, but it is far more likely that the loan terms only give them the remedy of demanding full payment of the outstanding loan balance immediately -- which they will surely do.
Is there "ordering" with these sorts of debts? If the house sells for, say, 50k at auction, does the 2nd mortgage holder get paid off completely and the first one gets only 37k or does the first one get 50k and the 2nd gets nothing or do the proceeds get split?

As for "demanding payment immediately" - blood from a stone. If the OP's assets are not in a form that can be garnished or seized in the state he is in, it doesn't matter. Depends on the state - for example, some states have no wage garnishment for debts, most protect retirement accounts, etc.

Last edited by SamuelA; 02-11-2019 at 07:10 AM.
  #86  
Old 02-11-2019, 07:26 AM
Airman Doors, USAF Airman Doors, USAF is offline
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Out of curiosity, does your job include a government security clearance? If so, walking away is career suicide as it will be revoked as soon as they find out. Financial stability is a big deal for the government.
  #87  
Old 02-11-2019, 09:10 AM
Really Not All That Bright Really Not All That Bright is offline
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Really? That would put a lot of lawyers out of work. Of course, it depends what was written in the contract. I have a real problem envisaging a mortgage agreement that did not make provisions for a default. I'm no expert on US property law, or any other, but businesses function in much the same way worldwide.

My take on the whole situation is this: defaulting for a trivial reason, while still being able to pay, will just cause you endless grief. If money is not the real problem, sell the house and move. Rent or buy as you wish, but frankly you would be better off buying if you are around a decade away from retirement.
I'm a lawyer in the U.S., and there is plenty of work. You might have been confused by the term "punitive damages," which refers to damages awarded in civil cases to punish wrongdoing rather than to make the plaintiff whole. In contract law, money damages are typically limited to compensatory or expectation damages, or in highly simplified terms, "the value of the contract."

The mortgage agreement does make provision for default; namely, the bank's right to foreclose, and to collect any additional sums due after foreclosure.
  #88  
Old 02-11-2019, 09:47 AM
Dead Cat Dead Cat is offline
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Quote:
Originally Posted by SamuelA View Post
Is there "ordering" with these sorts of debts? If the house sells for, say, 50k at auction, does the 2nd mortgage holder get paid off completely and the first one gets only 37k or does the first one get 50k and the 2nd gets nothing or do the proceeds get split?
Typically the first mortgage has "first charge" over the assets, which means if the outstanding first charge amount is equal to or greater than the value generated by the sale, they get 100% of this and any other creditors get nothing, they would then have to sue for the balance.
  #89  
Old 02-11-2019, 10:24 AM
Really Not All That Bright Really Not All That Bright is offline
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A second mortgage is a "junior lien" to the first mortgage. However, Dead Cat's explanation generally doesn't apply in the US, where a second mortgage is extinguished in a foreclosure sale (unless the second mortgagee wasn't made a party to the foreclosure action*). The second mortgagee can choose to pay off the first mortgage and thus take lien priority, and then foreclose itself. If the second mortgagee is the one initiating the foreclosure, it must pay the first mortgagee off before it can collect.

*If the second mortgagee is not made a party to the foreclosure, its rights are not affected. The foreclosure sale buyer takes the property subject to the second mortgage.
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